Nation

Moratorium period exceeding 6 months may result in vitiating overall credit discipline: RBI to SC

The Reserve Bank of India submitted to the Supreme Court that a loan moratorium exceeding six months might result in vitiating the overall credit discipline, which will have a debilitating impact on the process of credit creation in the economy.

In an affidavit filed in the apex court in the loan moratorium case, the RBI has said that a long moratorium period could impact credit behaviour of borrowers and increase the risks of delinquencies post resumption of scheduled payments.

The banking regulator filed the affidavit in pursuance to the apex court’s October 5 order asking the Centre and the RBI to place on record the K V Kamath committee recommendations on debt restructuring because of COVID-19 related stress on various sectors as well as the notifications and circulars issued so far on loan moratorium.

In its affidavit, the RBI has said that any waiver of interest on interest would entail significant economic costs which cannot be absorbed by the banks without serious dent of their finances which would have huge implications for the depositors and the broader financial stability. The RBI has said that mere continuation of the temporary moratorium would not even be in the interest of borrowers.The affidavit said the RBI has been the most proactive in announcing several measures to mitigate the impact of COVID-19.

The apex court is scheduled to hear the matter on October 13.

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